Goldman Sachs expresses optimism for the role of artificial intelligence (AI) in driving financial growth. It predicts that AI could be a major factor in propelling S&P 500 profits within the forthcoming 10-year period.
According to Ben Snider, a leading strategist at Goldman Sachs, AI is expected to bolster productivity by an estimated 1.5% annually. This could potentially result in a boost of 30% or even more for S&P 500 profits in the coming decade.
The recent upswing in AI interest is largely attributable to the introduction of ChatGPT, a chatbot developed by OpenAI. This development has not only sparked intrigue in AI's potential disruptions to daily living but also ignited new investor enthusiasm. Investors are keen to explore AI as a new engine for profit growth, especially amidst current challenges such as escalating borrowing expenses and supply chain difficulties.
Snider notes that recent drivers of S&P 500 earnings growth may be reversing. However, he remains optimistic about the potential for AI to increase productivity and spur profit growth.
While most investors agree that tech sector stands to gain immediately from AI advances, Snider raises the question of identifying future beneficiaries. Reflecting on the unpredicted rise of companies like Facebook and Uber during the tech bubble of 1999-2000, Snider suggests that predicting future game-changers can be challenging.
Snider advocates for a diversified investment strategy. He suggests that investors consider a balance of cyclical and defensive sectors, identifying energy and health care as sectors with appealing valuations.
Looking at the near future, Snider anticipates that the U.S. Federal Reserve is nearing the end of its monetary policy tightening phase. However, he expresses curiosity about the potential ripple effects on the economy.
He expresses concern that S&P 500 companies seem to be reducing corporate expenditure, and suggests high interest rates could be a factor. If a company perceives these rates as high, it might hesitate to accumulate debt, consequently decreasing spending. A decline in S&P 500 buybacks by 20% year-over-year in the first quarter of this year could be an indication of this effect.
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Q&A Section:
Q: How could AI influence S&P 500 profits over the next decade? A: AI could increase productivity by an estimated 1.5% per year, potentially boosting S&P 500 profits by 30% or more over the next decade.
Q: What industries does Ben Snider recommend for investment? A: Snider recommends diversifying U.S. equity investments in cyclical and defensive sectors, specifically pointing out the energy and healthcare sectors for their attractive valuations.
Q: How might elevated interest rates impact corporate spending? A: Elevated interest rates might make companies more hesitant to issue debt, leading to a pullback in spending. This can be observed in a decline in S&P 500 buybacks by 20% year-over-year in the first quarter of this year.
